Bonds Vs Bond ETFs? Which would you recommend? - Seedly

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Asked by Anonymous

Asked on 10 Apr 2019

Bonds Vs Bond ETFs? Which would you recommend?

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Zann Chua
Zann Chua
Top Contributor

Top Contributor (Mar)

Level 6. Master
Answered on 10 Apr 2019

Hello!

I personally would prefer Bond ETF over bonds.

1) Bond ETFs would be able to provide a form of diversification.

An ETF would allow you to own many different bonds in an index at a purchase price that is much lower than investing in each of them individually. Diversification is important when it comes to investing thus with Bond ETFs giving this advantage, i would choose it over bonds.

2) Liquidity

Bond ETFs can be bought anytime during the trading day while individual issues are likely to be traded much less frequently.

3) You will be able to receive returns more often

Instead of getting every six months, bond ETFs usually pay interest monthly thus you will be able to receive cash from month to month. Even though the value varies each month, monthly payments can give bond youa more regular income stream to use or reinvest.

But of course both comes with risks so it is important to know both investments well and understand their risks before deciding on which to invest in!

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Bond funds over individual bonds, and Actively managed over Passively Managed.

A bond index is created without friction. There's no trading costs placed in. However in the application of an index, ETFs suffer from cost implementation of high quantum bonds as there's higher turnover in a bond ETF than a bond fund.

Bond funds also charge pretty low, and net of fees performance they tend to outperform ETFs. They may not outperform the index, but they outperform the ETF that never outperforms the index either.

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Gabriel Tham
Gabriel Tham

11 Apr 2019

Hmm..interesting...are there low cost global bond funds? I currently use AGGU (Global aggregate bond etf) in my global etf portfolio
Hariz Arthur Maloy
Hariz Arthur Maloy

11 Apr 2019

Yes boss. 0.25% annual charge low enough? :)